“India is (not) going back into the background anymore. It has arrived.”

Modi’s economy also offers a ‘real alternative’ to China

Excerpt of analysis by Diksha Madhok in CNN: India is said to be a prime candidate to benefit from the ‘friend-shoring’ of supply chains, notably at the expense of China. It has a surging young population and humming factories, and market watchers are hoping that Modi’s ruling Bharatiya Janata Party (BJP) wins a third term, bringing greater predictability to economic policies for the next five years. If Modi is back with a majority and political stability is there, a lot more investor interest in India on a more sustainable basis is expected. Analysts at Jefferies expect the country to become the world’s third largest economy by 2027. Presently it is the world’s fifth largest economy.

Key observations

The quality of India’s new infrastructure under Modi is impressive. Peeyush Mittal, a portfolio manager at Matthews Asia, a San Francisco-based investment fund who manages funds focused on emerging markets, has frequently driven the 185 miles from the Indian capital to the city of Jaipur. The journey always took him six hours except last year, when he cruised at 75 miles per hour on a new expressway connecting the two cities, and made the trip in half the time.

India’s stock market is hitting record highs. The value of companies listed on India’s exchanges surpassed $4 trillion late last year. The future appears even brighter. India’s market value is expected to more than double to $10 trillion by 2030, according to a report by Jefferies, which would make it “impossible for large global investors to ignore.” MSCI said this month that it would increase India’s weighting in its emerging markets index to 18.06% from 17.98%, while reducing China’s to 24.77%. MSCI’s indexes help institutional investors worldwide decide how to allocate money and where to focus their research. Domestic investors, both retail and institutional, seem to be brushing aside high valuations, driving India’s stock market to unprecedented peaks –even though he lofty prices of India’s stocks are scaring some international investors away. Indian shares have always been expensive compared to other emerging economies; “the premium on the premium has expanded.”

India’s sizzling stock market rally is driven by domestic investors which adds to the country’s strengths and reduces its dependence on foreign fund flows amid potential challenges it faces: India does not have the capacity to absorb all the money that is flowing out of China, whose economy is still about five times bigger. China “has a few too many companies which are $100 and $200 billion plus [in value]”. “It is difficult to find home for that kind of chunk of money in India.”

China, is grappling with a myriad of economic challenges, including an accelerated flight of capital from the country. Its stock markets have suffered a protracted slump with more than $5 trillion in market value having been wiped out from the Shanghai, Shenzhen and Hong Kong bourses. Foreign direct investment (FDI) plunged last year, and fell again in January, down nearly 12% compared to the same month in 2023.

Apart from geopolitical rifts and an uncertain economic outlook, foreign companies and investors have grown increasingly wary of domestic political risks in China, including the possibility of raids and detentions. Institutional investors are still very wary about buying Chinese stocks, even though many now look like a bargain. “There are many good businesses in China, but with all the regulatory issues it becomes very difficult to predict what they will look like in the long run”.

China is therefore said to be a no go…(and) Japan has benefited from investors seeking an alternative to China. But the country is stuck in recession and recently lost its position as the world’s third biggest economy to Germany. So (India) is the other country that can maybe replace China. India (also) enjoys healthy relations with the West and other major economies, and is aggressively wooing large firms to set up factories in the country.

India has set an economic juggernaut in motion. It is hard to stop, irrespective of what happens to China.“Even if China comes back to the table and resolves a lot of problems, I don’t think India is going back into the background anymore.” “It has arrived,” (Mittal’s comment to CNN analyst).

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